Little damage found to gulf oil facilities

Companies say little damage observed, so far

Published 4:00 am, Wednesday, September 3, 2008

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A crude oil storage tank is surrounded by floodwaters from Hurricane Gustav September 2, 2008 in Chauvin, Louisiana. Chauvin is located just north of Cocodrie, where Hurricane Gustav made landfall. A significant amount of U.S. oil production comes from Louisiana and was threatened by the storm. less

A crude oil storage tank is surrounded by floodwaters from Hurricane Gustav September 2, 2008 in Chauvin, Louisiana. Chauvin is located just north of Cocodrie, where Hurricane Gustav made landfall. A ... more

Photo: Getty Images

Little damage found to gulf oil facilities

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The dense web of oil platforms, pipelines and refineries along the Gulf Coast may have survived Hurricane Gustav without serious damage, a prospect that bodes well for American drivers.

On Tuesday, oil companies began calling back evacuated workers, flying aircraft over offshore platforms and sending inspection teams through refineries shuttered by the storm. They didn't find the kind of widespread destruction they feared.

"So far, so good," said Frank Glaviano, vice president of American production for Shell Oil Co., after his company took an aerial survey of its offshore operations Tuesday. "Everything is there, and so far, we don't see any significant damage."

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Three years ago, Hurricane Katrina tore through the same area, ripping platforms from their moorings and flooding refineries. Gasoline prices across the country soared as a result, with the national average breaking $3 per gallon for the first time.

But Gustav didn't pack the same power, making landfall Monday as a Category 2 storm with weaker winds than Katrina's. As a result, gasoline prices will probably continue drifting downward. Although the nationwide average rose by a few pennies in advance of the Labor Day holiday, it held steady Tuesday at $3.68 for a gallon of regular. California's average is $3.91, according to the AAA auto club.

The lack of oil industry devastation triggered a sell-off in the oil market Tuesday. Prices on the New York Mercantile Exchange dropped $5.75 per barrel to $109.71, their lowest level in nearly five months. Traders started selling even before the oil companies released any specific information on damage.

"We really don't know the whole story of what damage has been done, but it's past, the worst is past," said Darin Newsom, a senior analyst with the DTN fuel market news service. "What we saw (Tuesday) was the energy markets went back to the path they'd been on since early July, which was to move lower."

Oil companies warned Tuesday that they have only begun to inspect their facilities and could uncover more damage as the week wears on. Most of the gulf's 717 offshore platforms remain abandoned and haven't been examined up close. The undersea pipelines that carry oil and natural gas to shore also need to be checked.

"It's this chain of hardware - from production all the way to the refinery - that needs to be inspected, and any one of those things can cause a bottleneck," said Chevron Corp. spokesman Mickey Driver.

The companies have good reason to be cautious. In 2004, Hurricane Ivan triggered underwater landslides that mangled pipelines along the seafloor. The full extent of the damage didn't become apparent for weeks.

And while Tuesday's first look found little devastation, much of the Gulf Coast's energy infrastructure remains closed. According to the federal Minerals Management Service, 100 percent of the gulf's offshore oil production has been shut down, along with 95.4 percent of its natural gas production. Thirteen gasoline refineries remain shut, and 10 more are running at reduced rates, according to the U.S. Department of Energy.

The Gulf of Mexico supplies more than one-quarter of all crude oil produced in the United States, and the refineries along the coast account for roughly half of the gasoline made in the country. If most of those facilities - both onshore and off - can be brought back online quickly, Gustav will have little if any effect on gasoline prices. If the closures drag on, however, then both gasoline and oil prices could rise.

"If we're offline two to three days, that's not going to have a material impact (on prices), because that's expected," said Ken Medlock, an energy research fellow at Rice University'sJames A. Baker III Institute for Public Policy. "If it goes to four or five days, you might hear more tremors in the marketplace, because people will be wondering what's going on out there."

For now, the gulf's energy industry appears to have escaped serious injury. Valero Energy Corp., for example, reported Tuesday that its St. Charles refinery, 15 miles from New Orleans, remained closed but showed no major structural damage. Power outages could delay the refinery's return to service, but the equipment appeared intact, said Bill Day, director of media relations.

"A little bit of water and very little wind damage, so we're doing OK," he said.

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